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By Sarah N. Lynch
WASHINGTON Aug 18 Wall Street's self-funded
regulator on Monday charged brokerage firm Wedbush Securities
with having shoddy risk controls, a flaw that in turn allowed
thousands of traders to flood U.S. markets and execute
The Financial Industry Regulatory Authority's case marks the
second time this year that regulators have filed civil charges
against the major brokerage firm over so-called market access
Earlier this summer, the U.S. Securities and Exchange
Commission filed a related against Wedbush; its former vice
president, Jeffrey Bell; and its current senior vice president,
In FINRA's complaint on Monday, the regulator accuses Los
Angeles-based Wedbush of having "egregious and systemic
anti-money laundering supervisory violations" that occurred
between January 2008 and August 2013.
Under FINRA's rules, the firm can now file a response to the
charges and request a hearing before a disciplinary panel.
Possible remedies may include a fine, censure, suspension or bar
from the industry, and an order to pay back ill-gotten gains.
Matthew Chisum, a spokesman for Wedbush, could not be
immediately reached for comment on the latest complaint.
The SEC matter, meanwhile, is slated to be heard before an
SEC administrative law judge, with pre-hearing briefs due by the
end of September.
Wedbush has denied the SEC's charges, saying its controls
were "reasonably designed to achieve compliance" with federal
market access rules.
Market access rules were put in place in 2010 by the SEC as
one of the responses to the "flash crash" that year in which the
Dow Jones Industrial Average plunged sharply by about 700 points
before sharply rebounding. They require brokerages that provide
customers with direct access to the market to have reasonable
controls in place.
The first brokerage to ever face charges for violating the
rules was Knight Capital, now called KCG Holdings, which
paid $12 million in a 2013 settlement.
Wedbush, which is one of the largest firms by trading volume
on the NASDAQ stock exchange, became the second firm to face
charges over market access rules by the SEC in June.
That marked the first time the SEC had ever sued Wedbush.
However, the firm has a very long regulatory disciplinary
history with FINRA that stretches back decades.
(Reporting by Sarah Lynch; Editing by Lisa Von Ahn and Susan